Faculteit der Economische Wetenschappen en Econometrie

SERIE RESEARCH MEMORANDA

Urban Futures in the Era of the E-Economy

Marina van GeenhuizenPeter Nijkamp

Research Memorandum 2001-19

June 2001

vrije Universiteit amsterdam

NECTAR EUROCONFERENCE 6EUROPEAN STRATEGIES IN THE GLOBALISING MARKETS

16-18May 2001Dipoii Conference Center Espoo, Finland

URBAN FUTURES IN THE ERA OF THE E-ECONOMY

Marina van Geenhuizen *Peter Nij kamp* *

AbstractThe wide use of information and communication technology leads to structural changes in oureconomy and society. The impacts of ICTs embrace not only a faster and densercommunication but also a reorganisation of values ‘chains, firms, labour relations andmanagement structures. In this paper various actual and potential impacts on the function ofcities are identifíed and discussed. This is based on a scan of the literature and empiricalresearch of one particular value chain, i.e. that of fïnancial services. Attention is given tocustomer driven production, customer services, desintermediation and re-intermediation, newe-firrns and e-webs of fïrms, and flexibility of work places. A special focus is on differentforms of knowledge and concomitant constraints in eiectronic communication. The paperconcludes with a number of questions and some brief policy recommendations.

*Faculty of Technology, Policy and Management, Delft University of Technology, Delft NL,e-mail address: p.s.vaneeenhuizen63tbm.tudelft.nl

** Regional Economics, Free University, Amsterdam, e-mail address: pnijkamp@econ.vu.nl

1. Introduction

The use of information- and communication technology in commercial transactions has grown

tremendously since the mid 1990s. Most transactions using electronic commerce have been in

business-to-business commerce, but business-to-consumer commerce is likely to play an

expanding role in the next coming years. Electronic commerce has grown quickly as a result

of the application of e-mail and electronic data interchange (EDI), enabling users to substitute

physical papers by electronic forms. However, it is the Internet and the World Wide Web that

have allowed the stimulation of e-commerce.

An explanation of the popularity of Internet and e-commerce services can be found in

network extemality theory (e.g. Katz and Shapiro 1985; Capello, 1994; Economides, 1996).

The positive network effects include the ones of increasing returns and first-mover

advantages. Increasing returns means that with each new subscription to the web, the network

increases its user value. Subscription enables actors to carry out strategies at a world-wide

level. First-mover advantages means that each actor that introduces an innovation on the web

benefits f?om publicity and popularity of the name among consumers; this at the expense of

followers suffering from large marketing costs. The growing use of Internet and e-commerce

has also been approached from a transaction tost perspective. From this perspective the

following critical transaction and co-ordination economies may be observed (e.g. Wigand,

1997): a faster and denser transmission of information in communication; a tighter connection

in linkages within the firm, among firms and between fïrms and customers; a bringing

together of customers and sellers in the electronic marketplace (e.g. electronic auctions); and a

strategie use of networking in co-operation and competition.

The changes in society embrace more than just a faster and cheaper communication, with

increasing intensity of transmission. With the growth of Internet and e-commerce, a new

architecture of society is under way. The changes - although not al1 clear, because of complex

interaction and contradictory trends - point to a transformation of the organisation of

production (value chains), including the organisation of fírms, management structures and

labour relations (Dussart, 2000; Shapiro and Varian, 1999; Westland and Clark, 1999), with

concomitant spatial impacts. In value chains, for example, old, physical intermediaries

disappear fiom particular places while new electronic ones arise (van Geenhuizen and

Nijkamp, 2001; Kenney and Curry, 200 1). There has been quite some speculation about the

2

spatial impacts of this transformation, in particular the impacts on cities, ranging from the

death of cities to the rise of a few global command centres.

Against this background, this paper aims to uncover trends and potential developments in

electronic communication in terms of connectivity of cities with global grids and in terms of

serving the knowledge economy. Particular attention is given to emerging changes in the

value chain and repercussions on cities as nodes and on related transport flow. The basis for

unravelling the impacts of the e-economy on urban functions is a scan of the recent literature

and an empirical study of a sector subject to strong influence of ICTs and e-economy, i.e.

fmancial services (van Geenhuizen and Nijkamp, 2001). The results can be seen as what is

named “educated guesses”.

The paper is structured as follows. First, some scenarios on the future of cities are identifïed

and discussed. Then there is an analysis of the connectivity of Dutch cities with advanced ICT

infrastructure in order to identify urban differences in potentials for taking advantage from the

e-economy. This is followed by a discussion of the state of the art in research on electronic

communication of different types of knowledge, and an evaluation of the role of e-

communication in serving the knowledge economy. In the next part the paper turns to a

number of emerging adaptations in the value chain with important actual and potential

implications for urban functions and transport flow, including an assessment of the

uncertainty involved.

2 . Future Urban Developments

New technological advances mean a challenge for our space-economy, including the cities.

But it is as yet not clear which types of trends may be expected. To shed more light on the

related uncertainties, many researchers resort to scenario analysis.

In the literature, one can observe two extreme scenario’s and one moderate scenario for future

urban development in the ICT era - or broader - era of the e-economy. In the first, extreme,

scenario it is emphasised that modem ICTs enable to overcome barriers of space and time.

Firms and households become footloose meaning a larger freedom in choosing their location.

Homes as “electronic cottages” are (re)designed to be access nodes for households as

consumers, workers, etc. In a situation named the “death of distance”, place and location no

longer matter and, as a consequente, large cities weaken their hold over economie and social

3

life (Cairncross, 1997). Urban meeting places, markets, entertainment, etc. wil1 give way to

virtual gathering, e-business, e-information exchange and entertainment (Mitchell, 1995). The

basic hypothesis here is the ubiquitous access of fïrms and households to fast computer

networks.

The other extreme scenario says that large cities strengthen their position at the expense of

smaller ones. This scenario recognises the role of large corporations in decision making in the

global economie system, as wel1 as the fact that their specialised decision making - requiring

face-to-face contact - may hinder any trend for spread. Most probably there are only a few of

such “global urban command centres” in which highly qualified professional skills and tacit

knowledge are produced and circulate (see e.g. Gillespie and Williams, 1988; Graham and

Marvin, 1996; Sassen, 1999). ICTs help to extend the dominante of these cities by enabling

action at a distance and remote control of activities in smaller towns and rural places. In

addition, there are various generic arguments supporting agglomeration under the influence of

ICTs. First, the use of ICTs has enabled flexible specialisation. This development has

stimulated a spatial clustering of supplying firrns due to the need to build and sustain trust and

to transfer tacit knowledge. Secondly, many economie activities in cities are strongly

interrelated with the here present knowledge workers (e.g. Duranton, 1999). Although

distance seems to shrink under the influence of ICTs, the local linkages of these knowledge

workers in the urban labour market are reinforced due to an increasing demand for the fast

establishment of face-to-face contacts in high density knowledge transfer, both with

customers and suppliers of services. A third argument in favour of agglomeration is derived

from the institutional and social-cultural dimension of cities, which act as a kind of “glue”

between fïrms and organisations making them perform better. It is plausible that the social-

cultural dimension of cities acts as a counterbalance against the impersonal and

straightforward nature of electronic communication.

In a third altemative of a more moderate nature the possibility of access of various selected

medium-sized towns and smaller settlements to global decision-making networks is

recognised. In this vision ICTs have no deterministic impacts but work through the way in

which they are “constructed” in society in complex processes of institutional and personal

interaction. Socio-economie actions can direct the application of the new technologies and

change their impacts each time. The relation between the development of cities and the use of

4

ICTs therefore, seems complex and non-linear, leading to a variety of results in places and

times (Graham and Marvin, 1996; Malecki and Gorman, 2001; Mitchell, 1999).

The issue of the future of cities is the more interesting because recent research has depicted

various important emerging patterns. In Europe there is a genera1 trend for spatial dispersal

(e.g. Groth, 2000; Lambooy, 1998). A so-called polycentric model seems emerging, with

smaller towns and rural areas exhibiting a stronger employment growth than large cities. The

relative stagnation of large cities may be attributed to certain agglomeration diseconomies

here (Manshanden et al., 2000). In addition, in some cases we observe the rise of network

cities. In The Netherlands, the northem wing of the Rimcity (including Amsterdam) seems to

develop as a network city, not only connected through labour market relations, but also

through business trips, shopping and other leisure trips (van der Laan, 2000). On a lower

spatial scale there seems an employment increase at the edge of cities, whereas inner city

areas tend to increase the flmction of living area. These pattems indicate the emergence of a

growing diversity in density and tùnction. The key issue in the context of the e-economy is

whether the concomitant changes reinforce ongoing trends of spatial dispersal or weaken

them.

3. Dutch Cities in Grids

This section explores the different position of Dutch cities as nodes in (inter)national ICT

networks. To this purpose a few selected fiber-optic grids are analysed, i.e. EuroRings (KPN-

Qwest), Surfnet 4/5, and CityRings (KPN) (Table 1). By considering the size of the cities

connected with these grids it appears that Amsterdam, as the largest city, has the best

connections. Dependent on the type of grid, Rotterdam is also in a favourable position. For

example, EuroRings - grids around European agglomerations - connects both Amsterdam

and Rotterdam with other European centres and, in the near future, with the largest cities in

the US (using the Qwest grid) (KPN, 2000). Another example is Deutsche Telekom, that

operates an intemational network in which most recently Amsterdam is included, aside fiom

London, Paris and Brussels. Both grids represent intemational grids established in a period in

which market demand determines the location of the connections, i.e. the largest cities.

A different intemational network is SURFnet. It connects universities and research centres in

various parts of the world and offers the possibility to subscribe for large enterprises. In The

Netherlands al1 four large cities are connected, aside fiom eight mostly medium-sized

5

university towns. To date, SURFnet is being replaced by SURFnetS, meaning a capacity

increase by hundred, as wel1 as access to new generations of Internet. In The Netherlands this

network - named Gigaport - is heavily subsidised by the govemment in order to push The

Netherlands intemationally. By making use of Gigaport, knowledge institutes and enterprises

can participate in advanced research based on new broadband technologies that are not

available somewhere else, like in research of fast, three dimensional simulation, intemational

tele-consulting and data-mining. The third indicator used here to identifl the position of cities

in (inter)national grids, is CityRings (KPN), i.e. fiber-optic rings established around relatively

large cities to increase transfer and connection capacity. Al1 large cities and a considerable

number of medium-sized towns in The Netherlands are connected in this way (85% of the

twenty largest cities).

Table 1 Position of 20 largest urban agglomerations in The Nederland in ICTnetworks (selected indicators) (1999/2000)

Urbanagglomeration

according to sizeLargest city

4 largest cities10 largest cities20 largest cities

EuroRings (KPN-Qwest)

1 0 0 %50%2 0 %1 0 %

SURFnet4/5 CityRings (KPN)

1 0 0 % 1 0 0 %1 0 0 % 1 0 0 %

.80% 1 0 0 %5 5 % 8 5 %

Bron: van Geenhuizen, 2000.

If we focus in on the intemationai position of Dutch cities based on various supply-side and

demand-side indicators, it appears that only Amsterdam plays an important role. According to

a ranking based on the price of services, choice of available connections and availability of

the most advanced connections, Amsterdam is fïfth in Europe, following London, Stockholm,

Paris and Frankfurt (Graham 1999). According to an indicator conceming the use of Internet,

however, Amsterdam is third in the world. Of the 50 most frequently used Internet routes

Amsterdam is end-station of seven routes in the world, against nine each for London and New

York (Abramson, 2000). As a node in Internet traffïc Amsterdam thus holds a position in the

top’of Europe.

Although the evidente is fragmentary, the conclusion may be drawn that there is no death of

distance in terms of access to the fastest global grids. Nodes are only created there where the

6

i ” .-

potential market is largest due to sheer size of cities or specialised research functions. Thus,

the urban hierarchy of our world is partly replicated by the current ICT developments.

4. Electronic Communication in a Knowledge Economy

Despite high-speed fiber-optic connections, there are a number of constraints in electronic

communication. In this context it is common practice to distinguish between codified, and

tacit knowledge. Contextual communication has been added as a separate class more recently

(Bolisano and Scarso, 2000; Foray and Lundvall, 1996). Codified knowledge is based on

objective facts understandable for al1 actors that know the language (codes) and consequently,

it is transferable between different organisations. In contrast, tacit communication deals with

subjective knowledge, like personal experience, ideas and specific routines. Much of this

communication is by chance, such as during werk, at lunch or toffee breaks. A basic

requirement is that the persons involved understand each other by using similar conventions

and routines in understanding, usually merely existing within one and the same organisation.

A third form of communication is often not distinguished explicitly, i.e. contextual

communication, but in view of constraints of electronic communication a distinction seems

necessary (Bolisano and Scarso, 2000). Major points of differente with the previous forms are

the aim of the communication, namely transfer (exchange) of new meanings and new

interpretative Iì-ameworks. Concomitantly, there is a need to avoid predefïned methods and

outcomes etc., while the communication is basically a long term process of interactive

learning. It seems that innovative segments of the value chain not only depend on tacit

knowledge between similar organisations but also on contextual communication between

different organisations, particularly because the latter enables “radical” innovations, by

widening horizons and breaking with existing frames of references.

The crucial question is to what extent these three types of comrnunication can be carried out

electronically and lead to sufficient tost advantages to be adopted on a large scale?

Furthermore, is there substitution of face-to-face communication by electronic

communication, or is there complementarity of both types? And to what extent is there

compensation, like an increase of face-to-face communication on higher levels following

from electronic communication on lower levels? The answer so far is that there is only

substitution of codified knowledge and this seems to be accompanied by some compensation.

Tacit communication and contextual communication suffer from major constraints using

electronic devices, although in the former some progress is being made.

Table 2 Forms of communication

Codified Tacit Contextual

Content Objective knowledge in Subjective knowledge Subjective knowledge aboutfacts, figures, formulas, connected with ideas, perspectives and interpretativedesign perceptions and personal fiarneworks

experienceEnvironment Within and between Mainly witbin organisations Between organisations with a

organisations and between organisations different culture and frame oftbat share culture references.

WaY of Standard codes Observation, interactive Continuous real-timeTransfer participation and practice interactive learning

Zontext of Intentionally Intentionally, but often by IntentionallyTransfer chanceSuccess Unifortnity of codes Trust Different frames offactors Share of interpretative interpretation

frameworkFocus Standardisation, Flexibility, variability, Innovative content, context

replicability, reliability, management of ambiguity exploration, ricbness of formspeed, efftciency, and contentautomatie processing

Zonstraints Few Substantial structura1In EDI a shortage of l Intelligent agents: l Frustration of basic needs:forrnalisation of problems of validity, continuous real-timecotnmunication learning in unexpected interaction, broad range of

situations and trust in information without pre-delegating tasks defïned language, variety of

l Multimedia using means and channelsinteractive tools: l NO predefined aims andimpossible to integrate expected results (and costs)al1 functions withuniversal applicability

With regard to codifïed knowledge there are no constraints as long as the communication is

sufficiently formalised. Thus, an increase of the use of Electronic Data Interchange (EDI) is

only hampered by a shortage of universal languages in business communication. For tacit

communication, there are much more constraints. Trust and similarity in interpretative

framework are critical success factors, and these can only be established in face-to-face

comrnunication. From experiences with global virtual teams in geographically distributed

decision-making, one may draw the conclusion that important decision-making can be done

using electronic devices, but there remains a need for face-to-face communication from time

to time to refresh relationships and to re-establish trust and confïdence (e.g. Maznevski and

r

Chudoba, 2000; Mitchell, 1999). Furthermore, two approaches to deal with the specifïcity of

tacit knowledge transfer, i.e. the use of intelligent agents (based on artifïcial intelligente) and

multimedia with interactive tools, have led to important progress but stil1 suffer from serious

shortcomings (Table 2). For example, the use of intelligent agents suffers i?om a lack of

validity in the representation of mental models by codifïed software and a lack of trust by the

user. In addition, multimedia approaches are only partly able to match with the need for the

richest information content and for a whole array of possible fùnctions with universal

applicability. With regard to contextual communication, one may say that substitution of face-

to-face contact seems impossible, also on the longer term. The major reason for this is that

some important points of departure are not defíned in advance, i.e. the aim of communication

and the means (channels). In addition, the communication is a long-term interactive process

using a great variety of means and content.

At the same time, in daily personal and professional life there is a continuous evaluation and

selection of communication modes (Table 3). By using two dimensions, i.e. the time

dimension in terms of synchronous and asynchronous, and the spatial dimension in terms of

local and distributed, we can identify four different modes. It seems that al1 modes have their

appropriate roles, and choices wil1 be made dependent on needs for specific communication

and willingness to pay the associated costs in particular contexts (Mitchell, 1999). For

example, e-commerce is mainly in the quadrant distributed, synchronous. This is also true for

global virtual teams active in distributed decision-making but, as indicated previously, a key

success factor is additional local, synchronous communication (face-to-face contact) on

regular basis.

Table 3 Advantages and disadvantages of modes of communication

!LocalSynchronousRequires transportRequires co-ordination

l-Richness of communication(intense, personal)Very high costs

Distributed Eliminates transport

L-Requires co-ordinationRequires additional modes incomplex communicationReduces costs

Source: Adapted from Mitchell, 1999 (p. 138).

AsynchronousRequires transportEliminates co-ordinationReduces costs

Eliminates transportEliminates co-ordinationLimited to particular communicationVery low costs

In genera1 there has been a move towards the very low tost, distributed asynchronous

quadrant in the past decades. As we have seen previously, there are quite some constraints in

the distributed, synchronous quadrant for tacit and contextual communication.

5 . Urban Functions in the Future

In this section we focus in on a number of adjustments in the value chain, partly based on

empirical results tÌom the fïnancial sector. It is important to note that the fïnancial services

chain, like for example travel agency services, deal with immaterial services. The situation is

more complex for chains including physical goods, because these have to be shipped to the

customer. The following developments can be observed:

l an increased customer driven production

l an increased importante of customer services (customer management)

l a removal of sections of chains (desintermediation) and an entering of new intermediaries

(re-intermediation)

l the rise of new e-fïrms and webs with e-firms

l increased innovation

0 an increased flexibility of work locations.

Customer-driven Production

The phenomenon of increased customer-driven production need to be seen in the context of

mass-individualisation. E-commerce matches this development because there are lots of

opportunities for selection and price-reduction, for example using “co-buying”. Consumers

may scan offerings world-wide, using search machines to compare prices and using intelligent

agents to negotiate. Accordingly, consumers may select unique packages of products and

services. This holds true for fïnancial services, books, music, travel reservation, consumer

electronics, toys, apparel and self-assembly personal computers (AESN-AMRO, 1999). A

major consequente is the closing down of retail outlets or service offices at the lowest level.

In fínancial services, known for the use of a wide range of electronic devices in routine

transactions, we have seen a closing down of local offices by 21% in the past seven years

(Table 4). This implication is also true for travel agencies, book shops, music shops, and

employment agencies. However, it must be noted that the contraction at the lowest leve1 of

1 0

services can partly also be ascribed to processes of rationalisation following mergers and

acquisition.

A true customer-driven system means that risk and inventory can be removed f?om the

system, leading to particular tost reductions. The changes in logistic organisation and

transport are not known to date but what stands clear is an increase in the number of trips and

of the distances involved, as wel1 as changing roles of distribution centres. A major point of

attention is to improve customer delivery.

Customer Services

The second development - an increased supply of customer services - is also evident in a

number of chains. These services are based on personal face-to-face contact and physical

presence of consumers. Pre-sales for example, deals with customer specifïc advice and user

information. For particular goods, it is necessary that consumers touch, fee1 and test the

product, or merely enjoy the atmosphere (the so-called “shopping experience”). It is plausible

that such services can only be provided at higher levels than the local. In the United States

electronic banks make 65 to 70% less costs than existing “brick and mortar” banks, meaning

that they can supply services at cheaper rates. Accordingly, “brick and mortar” banks fee1 the

need to preserve the loyalty of their clients and supply custom-made services based on a deep

knowledge of the clients’ profïle. Thus, the fïnancial sector shows the rise of meeting places

between banker and client at the regional level. The rise of regional bank offices with

extended personal services can be seen as a kind of “compensation” for the loss of face-to-

face contact at the lowest level.

Desintermediation and Re-intermediation

Desintermediation often occurs at the end of the value chain, but in some chains a whole

range of intermediaries may disappear. This is the case if music players or writers (poets) sent

their work directly to customers, thereby circumventing producers, wholesale and retail. In

other chains one may observe the disappearance of physical intermediaries like auctions and

purchasing agents, as wel1 as the joining of virtual intermediaries. Internet business-to-

business auctions are meant to purchase globally at cheapest rates. Some firrns have

established vertically oriented sites, like Genera1 Motors and Ford for car components and

Boeing for aircraft components. The disappearance of physical segments of the value chain

11

may cause a decrease of importante of cities as meeting places, trade- and transaction centres,

and may concomitantly lead to a reduction of the traffic concemed.

In fïnancial services and many other chains one observes the emergence of virtual

intermediaries that support consumers in information gathering and processing, e.g. in the

process of selecting products and services, and in connecting with selected suppliers. The rise

of these “infomediaries” is typical for Internet because of the abundant and open information

supply. Infomedairies may also - if neutral - verify the identity of buyers and sellers, and

certify crucial information transfer (Saanen et al., 1999). It seems that the function of cities as

meeting and information places for routine and less complex matter may be taken over by al1

kind of virtual intermediaries. However, at the same time it seems that new types of physical

meeting and information centres wil1 arise in close interaction with electronic ones, maybe

with a lower frequency than previously but with the important role to make electronic

meetings and information handling run smoothly. Thus, face-to-face contact and

telecommunication seem inextricably intertwined (Mitchell, 1999).

Emergence of E-fìrms

The rise of e-firms can be observed in many value chains. These fïrms not only save

substantial costs of retail outlets, inventory and personnel, but they may cover the entire world

as their market area. However, substantial entry barriers arise in situations where “first

movers” have established market positions, trade marks and customer relations. Thus, entry

barriers of followers consist of considerable costs of marketing in order to attract the attention

of customers. It is not easy to assess the impact of these developments on the function of

cities and transport and traffic; this is the more true because many new initiatives of e-firms

are not successful. In any case, we may expect some blurring of the centra1 place structure

with more diffise market relations and thinner good flows. In addition, what might happen is

that established fírms - by co-operating with e-fïrms and establishing e-firms by themselves -

strengthen their position, particularly those flrms located in certain large and medium-sized

towns because they enjoy particular agglomeration economies available here.

.

Innovation

An important answer to the increased competition from e-activity is innovation. We expect

that what is indicated above for the rise of e-firms also holds true for innovative activities of

established fïrms. Given the previously discussed constraints in tacit and contextual

1 2

communication one may draw the conclusion that large cities and some smaller ones remain

the seedbed of innovations. These cities are not only connected with the fastest

telecommunication grids in the world, they also host a reservoir of specialised knowledge

workers serving complex data-processing and application (Glaeser, 1998). This situation

seems also true for the iünction of cities as headquarter centres. If we take Amsterdam as an

example for headquarter activity in the fïnancial services chain, there seems to be a

consolidation in the past years (Table 4). The number of jobs has increased, but the share in

the nationai total has remained the same. What is remarkable is a slight decrease of the share

in al1 headquarters in the Netherlands. An in-depth analysis however, shows that this decrease

can be partly attributed to a withdrawal of foreign banks due to internal reorganisation (van

Geenhuizen and van der Knaap, 1998). The latter observation shows that urban functions are

also subject to other influences than ICT and the e-economy, and these are difficult to

disentangle.

Table 4 Indicators for spatial dynamics in fmancial services in The Netherlands

(a) Data for retail offices derived from the three largest banks in NL, data for higher leve1offices derived from ABN-AMRO and ING.

(b) 1988Bron: van Geenhuizen, 2000.

Flexibility of Work Locations

Already for some years, the use of electronic communication has enabled employees to

perfoim working tasks at home that would otherwise be performed in the working place

(telework). It seems that there is only a partial substitution, based upon a couple of social-

psychological reasons, like the need for social contacts in the workplace and the need for a.certain travel time (to “disconnect” fiom home and work) (Salomon, 2000). A relatively new

development is the establishment of telecentres (or “flex-oftïces”) at the edge of

agglomerations, where employees from different fïrms work by connecting themselves

electronically with their headquarters. These developments seem to lead to a reduction in the

13

nurnber of cotnrnuting trips and a reduction in average distance. However, there is hardly any

knowledge of the secondary impacts, although these may be as important as the primary ones

for tbe function of cities. It is plausible that a reduction in tbe nurnber and distances of

commuting trips causes a relocation of living places at larger distances from the city centre,

thus increasing suburbanisation over larger areas.

Table 5 Impacts on urban functions and transport

(1t

11i1(i

1\i

Value chainzhangesiull by customers

Zustomernanagement andiervices

Desintermediation Decrease of trade and:elimination of transaction centrelhysical markets, fünction at differentnrctions, etc) levelsZe-intermediation Some loss of íìmction ofinsertion of virtual meeting and informationntermediaries) place but new forms

Zmergence of e-tïrms Bluning of the centra1vith global markets place system (urbanmd of global e-webs hierarchy)

Yncreased innovation

ilexibility of workocations

.

Urban functions Transport and traffk

Decrease of role as a More trips and highernode in distribution fiequency

Decrease of retailfunction and otherservices at the lowest(local) leve1Increase of retail andother services at higher(regional) leve1

Remaining strongincubation fùnction oflarge cities, and somemedium-sized onesPartial loss of workfnnction by centra1 city,and gain by edge

Maybe spread of livingfùnction

1. - + small; + = considerable; ++ = large

Decrease of customertrips on leve1 of livingquarters and smal1centresIncrease of customertrips at higher levels(sub-centres in cities andmedium-sized towns)Decrease of trips fortrade and transactions atdifferent levels (see also1)Some decrease of tripsto city centre or sub-centre for meetings andinformationMore dispersed flow ofcustomer trips, goodsupply, and work trips

Adjustment of globallogistic chains

NO change

Less and on averageshorter commuting tripsLess focus on centra1city

On average longer trips

Uncertainty (a)Direction Magnitude

+ +

+

+

+ tl-

u u

u

u u

+ +

+

+ +t

14

6. Uncertainty

If one thing stands clear it is that the pattem of impacts of the e-economy on cities is highly

differentiated, both with regard to urban functions and with regard to the spatial scale level. In

addition, the images and expectations of changing urban functions and transport and traffic

indicated in the previous sections are by no means certain, and this holds both for the

direction of the impacts and their magnitude. Four changes are relatively clear in terms of

direction. These are a decrease of retail activity at the lowest level, increase of customer

services at higher levels, a bhtrring of the market fimction (centra1 place), and a loss of

workplaces in city centres. High uncertainty - both in terms of direction and magnitude -

exists with regard to impacts of new (information) intermediaries and impacts of e-fïrms and

e-webs of production. Traditional meeting place and relatively simple information supply

íùnctions may disappear from the cities. However, new physical meeting places - closely

related with electronic networks and clubs - may arise but these are largely tmknown to date.

Also largely unknown are the impacts from the reorganisation of global logistic chains on

cities as nodes.

Uncertainty sterns fiom various sources, i.e. the complexity of urban reality, the lack of

knowledge about new ICTs and about the direct and indirect impacts that unfold after

different times. In addition, interest groups respond quickly to new opportunities partly in a

fashionable way, but they may also easily shit3 attention. This turbulente increases

complexity, particularly in terms of policy-making. Another point that needs to be kept in

mind is that the available knowledge is fragmented and not achieved in a co-ordinated way. In

this context we can identify the following knowledge gaps:

l The pace of the changes; to what extent are physical (infra)structures or ongoing

developments working as impediments to change, or as catalysts or movers of change?

l The comprehensiveness of the changes; are the impacts general, or specifíc for particular

value chains?

l The causa1 background of the changes; to what extent are particular adjustments in the

l value chain caused by ICTs and the e-economy or by other (autonomous) organisational

changes with similar impacts?

l The nature of indirect effects on the city, and the different time-scales involved.

15

This situation of important unanswered questions has two implications for ICT policy and for

urban policy at different levels. First, there is a need for increased research and

experimentation efforts, and a better co-ordination of these efforts. Secondly, the manifold

uncertainty needs to be dealt with in policy-making, and one important way for this is the

design of flexible polities that can be adapted in time. An adaptation of once chosen policy

lines is needed if actual developments turn out to be different from expected ones and new

results fiom research and leaming experiments become available.

References

ABN AMRO (1999) Web or Shop? E-commerce and retail in the Nederlands. (in Dutch)Amsterdam.

Abramson, B.D. (2000) Internet globalization indicators, Telecommunications Policy, 24: 69-74.

Bolisani, E. en E. Scarso (2000) Electronic cornrnunication and knowledge transfer, Int.Journal of Technology Management, 20 (1/2): 116- 133.

Caimcross, F. (1997) lhe Death of Distance. How the Communications Revolution Wil1Change Our Lives. Cambridge (MA): Harvard Business School.

Capello, R. (1994) Spatial Economie Analysis of Telecommunications Network Externalities.Aldershot: Avebury.

Duranton, G. (1999) Distance, land and proximity: economie analysis and the evolution ofcities, Environment & Planning A, 3 1 (12): 2169-2188.

Dussart, C. (2000) Internet: The One-Plus-Eight “Re-volutions”, European ManagementReview, 18 (4): 386-397.

Economides, N. ( 1996) Network extemalities, complementaries and innovations, EuropeanJoumal of Politica1 Economy, 12: 2 11-233.

Foray, D. en Lundvall, B-A (1996) The knowledge-based economy: from the economics ofknowledge to the leaming economy, in OECD Employment and Growth in the Knowledge-Based Economy. Paris: OECD, pp. 11-32.

Geenhuizen. M. van (2000) ICTs, E-economy and Regional Development. Is Distance Stil1Alive? Proceedings of the 40th European Congress of the European Regional ScienceAssociation, Barcelona, August 29th - September 1st 2000 (CD-ROM).

Geenhuizen, M. van, and Knaap, G.A. van der (1998) Financial Services and the UrbanSystem in lhe Netherlands. TPM Studies in Urban and Regional Development, nr. 2. Delft:Delft University of Technology, Faculty of Technology, Policy and Management.

Geenhuizen, M. van, and Nijkamp, P. (2001) Electronic Banking and the City System in theNetherlands. In: Leinbach, T. and Brunn, S.D. (eds) The Wired Worlds of ElectronicCommerce. London: John Wiley, pp. 181-201.

Gigaport (2000) www Fioaport.nl.Gillespie, A. and Williarns, H. (1988) Telecommunications and the reconstruction of regional

comparative advantage. Environment and Planning 20: 13 1 1 - 132 1.Glaeser, E.L. (1998) Are cities dying? Journal ofEconomic Perspective, 12 (2): 139-160Graham, S. (1999) Global Grids of Glass; On Global Cities, Telecommunications and

Planetary Urban Networks, Urban Studies 36 (5-6): 929-949.

1 6

Graham, S. and Marvin, S. (1996) Telecommunications and the city. Electronic spaces, urbanplaces. London: Routledge.

Groth, N.B. (2000) Urban systems between policy and geography, Regional Studies, 34(6):571-580.

Katz, M.L. and Shapiro, J. (1985) Netwerk extemalities, competition, and compatibility.American Economie Review 75: 424440.

Kenney, M. and Curry, J. (2001) Beyond Transaction Costs: E-Commerce and the Power ofthe Internet Dataspace. In: Leinbach, T. and Brunn, S.D. (eds) The Wired WorZds ofElectronic Commerce. London: John Wiley, pp. 45-65.

KPN (2000) www.kpndLaan, L. van der (2000) Ruimtelijke implicaties van arbeidsmarktontwikkelingen. ‘s-

Gravenhage: RPD -0nderzoekspublikatie.Lambooy, J.G. (1998) Polynucleation and economie development, European Planning

Studies, 6: 457-466.Malecki, E.J and S.P Gorman (2001) Maybe the Death of Distance, but not the End of

Geography: the Internet as a network. In: Leinbach, T. and S.D. Brunn (eds) The WiredWorlds of Electronic Commerce. London: John Wiley, pp. 87-105.

Maznevki, M.I., and K.M. Chudoba (2000) Bridging Space over Time: Global Virtual TeamDynamics and Effectiveness, Organization Science, 11 (5): 473-492.

Manshanden, W., Muskens, J., en C. van der Vegt (2000) The Amsterdam economy as amodel, in: F. Boekema en W.de Graaff (ed) New ideas in the Netherlands spatial researchonderzoek. Policy for Zarge cities, transport en infrastructure (in Dutch). Assen: VanGorcum.

Mitchell, W.J. (1995) City of Bits. Space, Place, and the Infobahn. Cambridge (MA): TheMIT Press.

Mitchell, W.J. (1999) E-topia “urban Zzfe, Jim - but not as we know it”. Cambridge (MA):The MIT Press.

Saanen, Y.A., Verbraeck, A., and H. Sol (1999) Snapshot of e-commerce’s opportunities andthreats, Electronic Markets, Vol. g(3): 18 1-189.

Salomon, 1. (2000) Can telecommunications help solve transportation problems?, in: Button,K.J. and Henscher, D. (eds) Handbook of Transport ModelZing, Oxford: Elsevier.

Sassen, S. (1999) Global Financial Centres, Foreign Afiirs, 78 (1): 75-87.Shapiro, C. en Varian, H.R. (1999) Information Rules. A Strategie Guide to the Network

Economy. Cambridge (MA): Harvard Business School Press.Westland, J.Ch. en T.H.K. Clark (1999) Global Electronic Commerce. Theory and Case

Studies. Cambridge (M): The MIT Press.Wigand, R.(1997) Electronic commerce: definition, theory and context. The Information

Sociew 13 (1): 1-16

.

1 7